Launching the New Deal
The New Deal was a series of economic programs and reforms designed to combat the consequences of the Great Depression in the United States.
Identify the “3 Rs” of the New Deal
- In his acceptance speech for the Democratic nomination, Roosevelt promised “a new deal for the American people.” His New Deal agenda, initiated hours after he took over the office, was a series of programs that responded to the disastrous consequences of the Great Depression.
- No other president has achieved as much in his first 100 days of presidency as Roosevelt. With the collaboration of Congress, an unprecedented amount of legislation was passed at the time.
- Historians distinguish between the First New Deal (1933–34/35) and the Second New Deal (1935–38).
- The First New Deal (1933–34/35) was not a unified program. It dealt with diverse groups, from banking and railroads to industry, workers, and farming.
- The Second New Deal (1935–38) was more pro-labor/social reforms and anti-business. More long-term reforms and solutions to economic inequalities were proposed.
- Brain Trust: Franklin Delano Roosevelt’s advisory body that gathered three experts from Columbia University—Raymond Moley; Rexford Guy Tugwell; and Adolph A. Berle, Jr. The three academics greatly contributed to FDR’s initial response to the Great Depression.
- Second New Deal: The second stage of Franklin Delano Roosevelt’s response to the Great Depression. While the programs and reforms introduced in this stage continued the efforts of the first stage of FDR’s agenda, they were envisioned as more long-term solutions with profound consequences on the U.S. economy.
- 3 Rs: A popular way to summarize Franklin Delano Roosevelt’s response to the Great Depression. His New Deal agenda emphasized relief (direct provisions for the unemployed and the poor), recovery (bringing the economy back to the levels of stability and prosperity), and reform (introducing measures that would prevent a similar economic crisis in the future).
- First New Deal: The first stage of Franklin Delano Roosevelt’s response to the Great Depression. Nearly all the programs and reforms were initiated in the first 100 days of FDR’s presidency.
FDR and the Great Depression
On March 4, 1933, Franklin Delano Roosevelt, the newly elected Democratic president, gave his inaugural speech in which he projected confidence, hope, and cautious optimism. Yet the U.S. economy was in the midst of the greatest crisis in the country’s history. The banking system was on the verge of total collapse, the unemployment rate reached nearly a quarter of the labor force, and farmers were destroying crops after their market value dropped dramatically.
Although during the 1932 presidential campaign, Roosevelt had no clear idea what his New Deal agenda would entail, he took over the office ready to act. The New Deal was an unprecedented plan that envisioned large-scale programs and reforms designed to support struggling Americans, boost the economy, and prevent similar disasters in the future. A popular narrative presents the New Deal as a series of programs that responded to the Great Depression with “3 Rs”—relief, recovery, and reform. Relief was direct, immediate support for unemployed and poverty-stricken Americans. Recovery meant bringing the economy back to the level of stability and prosperity. Reform entailed introducing measures that would prevent a similar crisis in the future.
First New Deal (1933–1934/35)
No other president has been able to achieve as much as Roosevelt in his first 100 days of presidency. Nearly all the programs of the first stage of the New Deal were initiated at that time and executed within less than two years. Three expert advisers from Columbia University—Raymond Moley, Rexford Guy Tugwell, and Adolph A. Berle, Jr., formed Roosevelt’s “Brain Trust ” and greatly contributed to FDR’s initial response to the Great Depression. Although historians label it as the First New Deal, initiatives introduced in the first 100 days of Roosevelt’s presidency do not form a unified program. Instead, they were rather a bold response to what many saw as a war-like state of emergency. Some of the most important programs and reforms of the First New Deal were:
- Only 36 hours after taking the presidential oath, Roosevelt closed all the banks (the so-called Bank Holiday). The Emergency Banking Act followed the proclamation and enabled the government to close weak banks and reopen more stable banks. The initiative helped to rebuild trust in the U.S. banking system. Roosevelt also prohibited the export of gold from the United States and thus took the country off the gold standard.
- The creation of the Agricultural Adjustment Administration (1933). Among many initiatives, AAA provided farm subsidies in exchange for curbed agricultural production (farmers would not cultivate all of the land on their farms) and manipulated farm product prices by buying and temporarily withholding products from the market.
- The Tennessee Valley Authority (1933) was the first large-scale public works project which created short- and long-term jobs by building and operating a hydroelectric project in the valley of the Tennessee River. Public works projects were an essential component of the job creation program under the New Deal.
- The National Recovery Administration (1933) allowed industries to create codes that would regulate and curb unfair competition. The Supreme Court declared NRA unconstitutional in 1935.
- The Federal Emergency Relief Administration (FERA; initiated by Hoover) created local and state government jobs, mostly unskilled.
- The Civilian Conservation Corps (1933) put large numbers of men at work in natural resources projects (e.g., in national forests). The initiative combined conservation effort with creating jobs.
Although this list is not complete, it gives an idea of what kind of initiatives fall under the umbrella of the First New Deal. For the first time in American history, the government was directly involved in reforming and regulating the economy.
Second New Deal (1935–38)
While the Second New Deal was a continuation of the First New Deal, reforms and programs labeled as the Second New Deal were less a result of the earlier sense of emergency and more a reflection of bolder attitudes. The Supreme Court declared some of the First New Deal programs unconstitutional and Roosevelt followed with an agenda that focused more on the question of social justice. He pushed more pro-labor/social reform and anti-business initiatives but historians caution against seeing Roosevelt as anti-capitalist. The New Deal was always about fixing capitalism rather than replacing it with a state-regulated economy. The most important programs of the second stage of the New Deal were:
- The National Labor Relations Act (1935; known also as the Wagner Act), which established the National Labor Relations Board (1935). The NLRA supported the rights of workers to organize and bargain collectively. It also significantly curbed some of the practices that could harm the welfare of workers. The act remains a groundbreaking statute in United States labor law.
- The Works Progress Administration (1935) created millions of jobs by employing mostly unskilled men in massive public works projects (building bridges, parks, roads, etc.).
- The Social Security Act (1935) established the welfare system by providing financial support for dependent minors, the disabled, and the elderly. It also introduced unemployment insurance.
- The Housing Act (1937) provided funds for low-cost public housing for the poorest families.
- The Fair Labor Standards Act (1938) was the first federal law that included a national minimum wage and instituted the 40-hour week as the standard work week.
The New Dealers
The New Deal Coalition consisted of interest groups and voting blocs that supported Franklin Delano Roosevelt’s New Deal policies.
Identify the interest groups that made up the New Deal Coalition
- Franklin Delano Roosevelt’s response to the Great Depression realigned the American political landscape by attracting a more diverse and much wider base of voters to the Democratic Party. The New Deal Coalition emerged during the 1932 presidential election and solidified in the mid 1930s. It remained a hugely important political force well into the late 1960s.
- Roosevelt drew support from the urban working class (including what historians label as “ethnics”), city machines, labor unions, white rural voters, white Southerners, the white poor, and progressive intellectuals. African Americans also eventually joined the New Deal Coalition but did not support Roosevelt in the 1932 election.
- Roosevelt’s ” Brain Trust ” was a group of informal advisers that helped him develop New Deal policies. Together with politicians and experts who shaped and supported the New Deal, they are commonly referred to as “New Dealers.”
- New Dealer: A term used to refer to an expert, politician, or academic who shaped and supported Franklin Delano Roosevelt’s New Deal policies.
- Brain Trust: An informal body of Franklin Delano Roosevelt’s advisers who shaped his New Deal agenda.
- New Deal Coalition: A coalition of many diverse groups of voters and interest groups that emerged during the 1932 election and supported Franklin Delano Roosevelt’s New Deal. It changed the political landscape in the United States, turning the Democratic Party into the majority party.
The Great Depression and Politics
The disastrous consequences of the Great Depression shaped as much the economy as they shaped politics. Across the democratic world, voters shifted their political loyalties in response to how political parties and organizations handled the greatest economic crisis in history. The United States was no exception. With unemployment, poverty, and economic inequalities at the center of political debates, voters aligned their loyalties with those who responded to their personal plight. When during the 1932 presidential campaign Republican incumbent Herbert Hoover was largely blamed for the abysmal state of the national economy, his Democratic opponent, Franklin Delano Roosevelt, became the embodiment of hope and change that attracted many voters who had not sympathized with the Democratic Party before. Never in the history of U.S. elections were one’s social class and ethnic origin such strong determining factors of how Americans would vote.
The New Deal Coalition
The 1932 election marked the beginning of the process when a wide and diverse base of voters, many of whom had not supported the Democratic Party before, turned toward Democrats. The groups that overwhelmingly aligned with Democrats and Roosevelt’s New Deal agenda formed what would be known as the New Deal Coalition. The New Deal Coalition emerged in 1932 but solidified during the 1936 election. It consisted of:
- More recent European immigrants and their descendants, including Irish Americans, Italian Americans, Polish Americans, and Eastern European Jews: Most of these voters, characterized by their ethnic ancestry, lived in the cities of the Northeast and the Midwest and belonged to the industrial working class or were other types of blue-collar workers. The Polish American case remains an illustrative example of how appealing Roosevelt was to the urban workers that some historians label as “ethnics.” Although the majority of them supported Hoover in 1928, four years later, Polish Americans joined other urban working class Americans of European origin and voted for Roosevelt. Another factor that characterized this group was that most of them were not Protestants so political loyalties formed also along religious lines (e.g., Catholic and Jewish).
- Organized labor and the industrial working class: As the New Deal greatly emphasized the rights of workers and the regulation of big businesses, labor unions and the industrial working class became its natural supporters.
- City machines: These urban political organizations, in which an authoritative boss would usually attract the support of a substantial number of voters by offering them tangible benefits in exchange, recognized the opportunities of the New Deal and particularly the Works Progress Administration, a flagship New Deal program that created a massive number of jobs through public works projects.
- Progressive intellectuals: At the end of the 19th century, progressivism was associated mostly with the Republican Party. Progressive intellectuals and urban reformers endorsed the idea that the government not only could but also should be responsible for the social reforms that would regulate big businesses and improve the well-being of Americans, particularly the rapidly growing ranks of white urban workers, and regulate big businesses. Two Republican presidents, Theodore Roosevelt and William Howard Taft, endorsed that idea. However, Democrat Thomas Woodrow Wilson continued the progressive stand. Consequently, Roosevelt’s New Deal was rooted in the earlier reformist ideas endorsed by both Republican and Democratic presidents.
- White farmers: With the New Deal’s focus on rural reforms, farm subsidies, and control of the agricultural market, white farmers only strengthened their earlier support of the Democratic Party.
- White Southerners: This group of voters traditionally supported Democratic candidates so the New Deal coalition did not change their loyalties.
- African Americans: Black voters did not support Roosevelt in 1932. His alliance with white Southerners and lack of support for anti-lynching legislation and civil rights alienated African Americans. Roosevelt was also publicly silent on the fact that no other group of Americans was as disastrously affected by the Great Depression as black Americans. Historians note, however, that in 1932 black voters supported Hoover not because he had done much for black communities but rather not to support the candidate of the party that had a long history of suppressing African Americans. Although black Americans did not benefit from the New Deal as much as white Americans, their loyalty shifted gradually, mostly because of local Democratic organizations’ increasing interest in the plight of African Americans and not because of Roosevelt himself. Some also note that Eleanor Roosevelt’s efforts to convince her husband to make stronger connections with black communities attracted some black leaders to the Democratic Party. By the early 1940s, most black voters supported Democrats although at the time many African Americans continued to be disenfranchised.
The New Deal Coalition fell apart amid the disputes over the Vietnam War and civil rights during the 1968 election but some historians argue that its remains survived as long as the 1980s.
Additionally to the New Deal Coalition, Roosevelt also attracted a new group of officials who both shaped and supported his agenda. Known as New Dealers, they were academics, politicians, and experts who did not form a unified formal group but all advised Roosevelt on a plethora of issues. Together they formed Roosevelt’s Brain Trust or a body of advisers. Three Columbia University professors, Raymond Moley, Rexford Guy Tugwell, and Adolph A. Berle, Jr., constituted the original Brain Trust. Later, others joined the informal group but different historians label different influential figures as New Dealers, including Roosevelt’s cabinet members as well as experts who were not members of the government. While they represented various approaches to the question of how to end the Great Depression, they all shared the view that the central government not only could but also should shape and oversee reforms and market regulations that would protect the well-being of Americans.
Strengthening the Monetary System
One of the first initiatives of the Roosevelt administration was to reform the monetary system and failed banks.
Evaluate how the Roosevelt administration attempted to reform the monetary system
- Although historians debate the causes of the Great Depression, the international gold standard -based system of which the U.S. was the core member, and the largely unregulated U.S. banking system are critical to the understanding of the onset of the massive economic crisis. Among Roosevelt’s first decisions was to reform the banking system by introducing a national bank holiday and two major pieces of legislation: The Emergency Banking Act and the 1933 Banking Act.
- The Roosevelt administration took the U.S. off the gold standard, banned the export of gold, and through the Gold Reserve Act of 1934, outlawed the private possession of gold. These actions increased the amount of money in circulation to bolster economic growth.
- Emergency Banking Act: One of the first pieces of New Deal’s legislation. Although passed as an emergency measure, it largely stabilized the banking system.
- Banking Act of 1933: The major New Deal legislation regulating the U.S. banking system.
- Federal Deposit Insurance Corporation (FDIC): A United States government corporation operating as an independent agency created by the 1933 Banking Act. It provides deposit insurance to depositors in U.S. banks.
- gold standard: A monetary system where the value of currency is linked to the value of gold and backed with the reserves of gold.
- Gold Reserve Act: A 1934 law that required that all gold and gold certificates held by the Federal Reserve be surrendered and vested in the sole title of the United States Department of the Treasury.
- bank holiday: Suspending all the banking transactions, usually in order to reform a banking system. In 1933, it was one of the first proclamations that Franklin Delano Roosevelt issued in response to the collapsed banking system.
Prior to the Great Depression, the gold standard was the foundation of the U.S. monetary system. Every U.S. dollar could be always exchanged for a fixed amount of gold, which meant that the supply of money could be increased only if the reserve of gold increased too. However, during World War I, many countries went off the gold standard to fund their war effort by printing paper money. In the aftermath of World War I, the international balance between gold reserves and paper money was thus dramatically shaken. While
some European countries aimed to return to the gold standard, others were not able to do it and backed their currencies with the currencies that were backed with gold (like the U.S. dollar). That caused a very fragile international situation in which national economies had little flexibility and governments made decisions depending on the relation between paper money and gold, despite the existing weaknesses of the post-WWI gold standard. Whether a country was on or off the gold standard, the connection of the most powerful national economies and currencies (most notably, the United States, Great Britain, and France) to the gold standard had an impact on all. The outflow of gold in a country decreased the supply of money, which in turn triggered deflation (a decrease in prices). As the Great Depression demonstrated, dramatic deflation resulting from the lower supply of money (and not inflation as many feared) was a massive threat to the economy.
When the U.S. stock market crashed in 1929 (some historians argue that the gold standard-based system is critical to understanding why the crash occurred) and panic ensued, many assumed that having cash or gold in hand would be safer than keeping their assets in banks. As Americans rushed to withdraw their deposits, many banks lost their reserves and were in turn forced to reduce their loans and deposits. With approximately only one-third of banks belonging to the Federal Reserve System and thousands of unregulated commercial banks, the banking system was on the verge of collapse. Less money in circulation, higher borrowing costs, and lower wages created lower purchasing power of the consumer and lower profits for producers. Big companies, farm holders, and private households were not able to pay back their debts. Many of them went bankrupt. Both industrial and agricultural production halted, as any form of investment was risky and falling prices made production unprofitable. With limited production, jobs disappeared. By the time Franklin Delano Roosevelt took over the office, the banking system practically did not function, unemployment reached a quarter of the labor force, and many Americans lost whatever savings or investments they might have had.
While historians continue to debate the causes of the Great Depression, the gold standard-based international financial system at the end of the 1920s and the fragile, largely unregulated banking system of the U.S., the stability of which depended on how stable the overall financial market was, are critical to understanding the most devastating economic crisis of the 20th century. Consequently, reforming finances was one of the very first targets of Roosevelt’s New Deal.
The Banking Reform
Less than two days after taking over the office, Roosevelt issued a proclamation that suspended all banking transactions. This national bank holiday, with banks closed and Americans having no access to their deposits, gave Congress enough time to propose banking reform legislation. On March 9, 1933, the Emergency Banking Act was introduced to and passed by Congress. This emergency law, initiated by the Hoover administration, retroactively approved of the bank holiday and presented a set of rules on how and which banks would be deemed sufficiently stable to be reopened. Although designed as a temporary measure, banks began to reopen within days after the new law was passed, and trust in the banking system was quickly restored. In June of the same year, more long-term solutions were presented in the Banking Act of 1933 (also known as the Glass-Steagall Act although this term is not precise and usually refers to the provisions of the Banking Act of 1933 that dealt with commercial banks). The most important provisions introduced by the 1933 Banking Act were:
- Establishment of the Federal Deposit Insurance Corporation ( FDIC ). All FDIC insured banks were required to become or apply to become members of the Federal Reserve System by July 1, 1934 (the deadline was later extended).
- Separation of commercial banking from investment banking. Institutions were given one year to decide whether they wanted to specialize in commercial or investment banking.
- Outlawing the payment of interest on checking accounts and placing ceilings on the amount of interest that could be paid on other deposits in order to decrease competition between commercial banks and discourage risky investment strategies.
- Regulation of speculations.
- Regulation of transactions between Federal Reserve member banks and their non-bank affiliates.
Some of the provisions of the 1933 Banking Act are still in effect.
In March and April of 1933, the Roosevelt administration also reformed the monetary system through executive orders and legislation. First, the government suspended the gold standard. The export of gold was banned, except under license from the Treasury. Anyone holding significant amounts of gold coinage was mandated to exchange it for U.S. dollars at the current exchange rate. Furthermore, the Treasury no longer had to pay gold on demand for the dollar and gold was no longer considered valid legal tender for private and public debts. The dollar’s value on foreign exchange markets no longer had a price guaranteed in gold. With the passage of the Gold Reserve Act in 1934, the nominal price of gold was changed from $20.67 per troy ounce to $35, and most of the private possession of gold was outlawed. These reforms enabled the Federal Reserve to increase the amount of money in circulation needed to level the economy. Markets immediately responded well to the reforms, with people acting on the hope that the decline in prices would finally end. In her work, What Ended the Great Depression?, economist Christina Romer argued that this policy raised industrial production by 25% until 1937 and by 50% until 1942.
Agricultural Initiatives and Recovery
Roosevelt’s New Deal agenda included an unprecedented effort to provide reform, recovery, and relief programs in rural areas.
Identify some of Roosevelt’s agricultural initiatives
- Prior to the onset of the Great Depression, many rural areas in the United States experienced extreme economic hardships linked to the post-World War I situation in the agricultural sector.
- The Roosevelt administration recognized that the economy could not recover without reforms in the agricultural sector. Never before did rural areas in the United States witness such massive reforms and relief programs as during the New Deal.
- The Agricultural Adjustment Acts (first in 1933 and second in 1938) were among the most comprehensive, controversial, and influential pieces of the New Deal legislation.
- Several influential direct relief, reform, and recovery initiatives were brought to the countryside, including creating jobs through public works, providing direct financial and educational help to farmers, and bringing electricity to remote rural areas.
- New Deal rural programs embraced the conservation effort.
- Farm Security Administration: A New Deal effort that focused on combating poverty in the countryside by providing low-interest loans to farmers and resettling the poorest farmers to collective farms.
- Tennessee Valley Authority: A federally owned corporation in the United States created in 1933 to provide navigation, flood control, electricity generation, fertilizer manufacturing, and economic development in the Tennessee Valley region.
- Agricultural Adjustment Act: The New Deal’s flagship legislation that introduced comprehensive reforms in rural areas.
- Civilian Conservation Corps: A 1933 New Deal public works program that provided jobs for young, unmarried, unemployed men, focusing heavily on the conservation effort.
- Rural Electrification Administration: A New Deal effort that provided low-cost federal loans to cooperative electric power companies in order to bring electricity to isolated rural areas.
The Great Depression and Rural Areas
Unlike urban areas, many of which witnessed fantastic growth in the 1920s, rural areas in the United States experienced economic crises long before the onset of the Great Depression. World War I created extremely beneficial conditions for farmers and, consequently, easier times for struggling rural workers. Because of the war effort, agricultural production and prices were record high. The demand and resulting prosperity encouraged bigger farms to invest in the most recent technological advances. Farmers were not afraid to take loans to purchase newly introduced equipment (e.g., plows) that made production easier and more efficient. However, in the aftermath of WWI, the agricultural sector began collapsing under the weight of its own success. Production remained at the same level, but the demand was no longer driven by the war effort. With abundant product on the market, prices plummeted. While these changes benefited urban residents (cheaper food), particularly smaller farmers struggled to make any profit. Limited or no profit contributed in turn to even more debt. Simultaneously, the extreme production of the war and post war years had a devastating impact on the soil. With lower prices, farmers produced even more of whatever had the highest potential to generate profit. Crop rotation, fertilization, and conservation efforts were so modest during times of intense production that the soil was simply exhausted. In the early 1930s, drought, particularly devastating in the Great Plains, produced even more extreme challenges. Although by 1930, more than a half of Americans already lived in cities, nearly 44% still resided in rural areas. When Franklin Delano Roosevelt took over the office in March 1933, he and his administration recognized that the economy could not recover without efforts targeted at the agricultural sector. Never before did rural areas witness such comprehensive reform programs as during the New Deal.
Agricultural Adjustment Acts (1933 and 1938)
One of the main goals of Roosevelt’s administration was to control (lower) agricultural production and increase prices. The legislation that aimed to achieve this goal was the 1933 Agricultural Adjustment Act (AAA), one of the New Deal’s flagship, but also most controversial, programs. AAA offered landowners “acreage reduction” contracts in which farmers agreed not to grow certain crops on a portion of their land. In return, they received compensation for what they would have usually gotten from those acres. The money for the subsidies was to be generated from taxes imposed on companies that processed farm products. However, in 1936, the Supreme Court declared the 1933 AAA unconstitutional (the tax levied on processors in order to pay subsidies and regulation of agriculture by the federal government were both deemed unconstitutional). In the aftermath of this decision, the Agricultural Adjustment Act of 1938 followed. It revived the provisions of its predecessor, but the financing was about to come from the federal government and not from a tax imposed on food processors. The legislation helped the agricultural sector to recover, but it produced disproportional benefits for big farms and food processors. Many small landowners and tenants, particularly sharecroppers, were forced to leave rural areas and seek employment in economically struggling cities.
Relief and Recovery Programs that Benefited Rural Areas
- Civilian Conservation Corps (CCC, 1933): A public works program that provided jobs for young, unmarried, unemployed men. The program focused heavily on the conservation effort. Its main outcomes were reforestation (nearly 3 billion trees planted), creation of more than 800 new parks nationwide and revitalization of most state parks, and the building of a network of service buildings and public roadways in remote areas. While many politicians mocked the program initially, it was one of the most effective and popular efforts of the New Deal.
- Tennessee Valley Authority (1933): A major public works project that aimed to modernize the poor farms in the Tennessee Valley region by providing navigation, flood control, electricity generation, fertilizer manufacturing, and economic development.
- Farm Security Administration (FSA, created originally as the Resettlement Administration in 1935): Aimed to combat poverty in the countryside. Some of the measures employed by FSA were low interest rate loans for farmers, building cooperative farms where the poorest farmers were resettled in order to farm collectively (the government would also buy the sub marginal land from those farmers), and educational aid to rural families.
- Soil Conservation and Domestic Allotment Act (1936): Allowed the government to pay farmers to reduce production in order to conserve soil and prevent erosion.
- Rural Electrification Administration (REA, 1936): Provided low-cost federal loans to cooperative electric power companies in order to bring electricity to isolated rural areas. It is estimated that REA increased the rate of farms with access to electricity from 10% to around 40%.
The vision and outline of the New Deal’s rural programs have greatly shaped the agricultural sector and later rural reform efforts in the United States.
The National Recovery Administration (NRA), which was one of the outcomes of the National Industrial Recovery Act (NIRA), was the main New Deal agency focused on industrial recovery.
Discuss the purpose of the National Recovery Administration
- The National Industrial Recovery Act was the flagship New Deal legislation that focused on industrial recovery. One of its outcomes was the National Recovery Administration, an agency responsible for the implementation of NIRA and other provisions that would boost industrial development. Both NIRA and NRA were meant to foster cooperation between businesses, regulate production and trade, and establish fair labor practices.
- NRA also sought to set minimum wages, maximum hours, abolish child labor, and set minimum prices.
- NIRA was declared unconstitutional by the Supreme Court in 1935.
- The National Labor Relations Act (1935) reintroduced many of the labor protection provisions that were earlier included in NIRA.
- National Recovery Administration: A New Deal agency responsible for industrial recovery and industrial labor protection.
- Blanket Code: A National Recovery Administration proposal to set the minimum wage between 20 and 45 cents per hour, institute a maximum workweek of 35 to 45 hours, and abolish child labor.
- National Industrial Recovery Act: The New Deal legislation that introduced guidelines for industrial recovery, passed in June 1933.
National Industrial Recovery Act
Franklin Delano Roosevelt signed the National Industrial Recovery Act (NIRA), only three months after he took over the office (June, 1933). It was one of the most prominent and controversial New Deal laws focused on boosting the industry. It aimed “to encourage national industrial recovery, to foster fair competition, and to provide for the construction of certain useful public works.” Title I of the act was devoted to industrial recovery. First, trade and industrial associations were permitted to seek presidential approval of “codes of fair competition.” The codes would contain production, labor, and trade guidelines for each industry in order to limit competition and encourage cooperation. They could not promote monopolies or create unfair competition for small businesses and were exempt from federal antitrust laws. Second, workers were guaranteed the right to unionize and bargain collectively. Third, Title I provided standards of maximum work hours, minimum wages, and labor conditions that the codes would cover. Title II established the Public Works Administration (PWA), an agency that would create jobs through public works projects. It also provided funding for a series of transportation projects, local initiatives that would battle unemployment through public work projects, and necessary acquisitions of property that would make such projects possible.
NIRA gave the administration the power to develop voluntary agreements with industries regarding work hours, pay rates, and price fixing. The codes of fair competition were to be developed through public hearings. In his June 16, 1933, “Statement on the National Industrial Recovery Act,” President Roosevelt noted, “On this idea, the first part of the NIRA proposes to our industry a great spontaneous cooperation to put millions of men back in their regular jobs this summer.” He further stated, “But if all employers in each trade now band themselves faithfully in these modern guilds, without exception, and agree to act together and at once, none will be hurt and millions of workers—so long deprived of the right to earn their bread in the sweat of their labor—can raise their heads again. The challenge of this law is whether we can sink selfish interest and present a solid front against a common peril.”
National Recovery Administration
At the center of NIRA was the National Recovery Administration (NRA), headed by Hugh S. Johnson, whom Roosevelt made responsible for industrial recovery. The agency’s main purpose was to plan and introduce regulations that would boost industrial recovery and employment opportunities. NRA envisioned government experts, business representatives, and workers to write the codes of fair practices that would reduce competition and establish labor and production rules in each industry. Minimum wages, maximum working hours, prices, and production quotas were all to be covered under the codes. These set rules, agreed upon by a coalition of economic actors that would often remain in conflict with each other, were intended to shape the economic recovery by preventing labor disputes, regulating levels of production, preventing further deflation (regulate prices), and establishing fair labor conditions.
Johnson called on every business establishment in the nation to accept a stopgap ” blanket code “—a minimum wage of between 20 and 45 cents per hour, a maximum workweek of 35 to 45 hours, and the abolition of child labor. Together with Roosevelt, he contended that the blanket code would raise consumer purchasing power and increase employment.
Following the provisions of NIRA, NRA engaged in drafting the codes. It approved 557 basic and 189 supplemental industry codes in two years and became notorious for generating large numbers of regulations. Between 4,000 and 5,000 business practices were prohibited, some 3,000 administrative orders running to over 10,000 pages were promulgated, and thousands of opinions and guides from national, regional, and local code boards interpreted and enforced the act.
NIRA, and consequently NRA, attracted widespread criticism from business, politics, labor, and intellectuals. While some complained that the federal government was too involved in the regulation of the industry, others pointed out that it was industries that mostly wrote the codes and thus preserved a fair amount of control. Furthermore, NIRA’s labor protection provisions were not respected by employers. Higher prices, although welcomed in light of the severe deflation, did not boost the economy as wages remained low and the consumers’ purchasing power did not alter. In 1935, the U.S. Supreme Court unanimously declared that NIRA was unconstitutional, ruling that it delegated legislative powers to the executive branch and regulated commerce that was not interstate in character. NRA’s role was redefined by executive order. The agency now promoted industrial cooperation and produced economic studies.
Many of NIRA labor provisions reappeared in the National Labor Relations Act (Wagner Act), passed later the same year. The NLRA enabled private sector workers to organize into trade unions, engage in collective bargaining to negotiate the terms and conditions of their employment without being marginalized or coerced, and take collective action if necessary. In the long term, the act allowed a surge in the growth and power of unions, which became a core part of the New Deal Coalition.